Stop bailing out the irresponsible

SOMEONE had to say it. The Insurance Council of Australia has bravely come forward to make the obvious and rational point amidst the emotional brew of the Victorian bushfires. The ICA is advocating mandatory home and contents insurance for those who live in bush-fire prone areas. The critics will say a bunch of insurers would say that, wouldn’t they? They are looking for more business, right?

Of course, they are. But that does not detract from the logic of their central point. Indeed, more of us need to point out the illogical outcomes that flow when we encourage people not to insure their homes. “Why would you pay insurance premiums for 15 years when you know the bloke next door (without insurance) is going to get his home rebuilt to the same standard or higher?” ICA spokesman Paul Giles said. “We have compulsory third-party personal insurance for motor vehicles and you have to wonder why we are not having this discussion.”

It is tempting to dole out taxpayer dollars payouts to those hit by brutal fires. Images of people who have lost their homes are powerful. Yet, it makes no sense to encourage people to look to government for help when things go wrong rather than take responsibility by insuring their homes.

The ICA says that 24.5 per cent of Victorians do not have home and contents insurance – up to 30 per cent in the areas affected by bushfires. That figure will only rise if people work out there is no point insuring if government will step in and save them. It may be an irresponsible decision not to insure but it is an entirely rational decisions if you know you don’t need to insure. And the money to bail out those people has to come from somewhere. Each of us will end up paying for the irresponsible decisions made by others.

The situation is made worse by the unintended consequences of the Fire Services Levy. The levy in NSW and Victoria is imposed on policy-holders and effectively doubles the cost of home insurance. As The Sun-Herald pointed out, the levy accounts for 75 per cent of the total budget for the NSW Fire Brigade and 77 per cent of the Melbourne Metropolitan Fire Brigade and the Victorian County Fire Authority. So we are talking about serious sums of money being funnelled into the fire brigades by those who insure.

The perverse incentives arising from the imposition of this levy are clear enough. By making insurance more expensive, the levy encourages fewer people to take out insurance. The end result is those who act responsibly by insuring – and funding the fire brigades – end up paying for those who behave irresponsibly. Instead of slugging those people who do the right thing, a better solution is to expect each of us to pay for basic services such as fire brigades. Instead of a levy, government should be dipping into consolidated revenue.

The Sun-Herald reported NSW Emergency Services Minister Steve Whan as saying that “it seems heartless and a little too early to be quibbling over money while the fires are still burning and the final extent of this tragedy is still not known. People all over the country have donated generously to the bushfire victims without thinking about whether they were insured.”

Whan is wrong to mistake heartfelt charity for ill-conceived government policy. It is only right that people have donated in droves. But it is wrong for government policy to encourage people to take the path of irresponsibility knowing that others will bail them out. That is not heartless. That is common sense, a commodity often in scarce supply when you entrust governments to spend your money wisely and fairly.

Over to you…

Your Comments

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Earl GreySun 01 Mar 09 (02:42pm)

Yes and it’s amazing how a front page photo opportunity has the govt shovelling tax payers money out to those that knew the risks, took them and lost. Yet if an individual house burnt down in a city, well it’s their bad luck and they should have known better. We only like collective bad luck stories in this country, so if you are going to have bad luck or take a risk and lose, make sure you do it with lots of other people, say like working for BHP in the middle of nowhere. If you worked for a small mining company, you’re on your own, but if you work for BHP, the govt gets all teary eyed cause there’s thousands of people involved instead of just a few hundred.AndrewSun 01 Mar 09 (02:42pm)

When it’s a massive widespread disaster like this bailouts are needed to get the community back on their feet. I’m sure the insured wont mind terribly about that!

You get home insurace to safeguard against leaving the stove on and burning (only) your house down, or to protect against burgulars, not bushfires that kill 300 people.donorSun 01 Mar 09 (02:49pm)

To ensure that we all pay for a fire levy, it could be charge by the local governement as part of their collection of rates. If we wish, it could also include a “fire prone” component that should be most easily estimated as part of the rate setting process.Bailey’s MotherSun 01 Mar 09 (02:51pm)

Of course, Janet – those who were uninsured or underinsured said to themselves “ It’s ok; when a firestorm comes, I’ll just get lots of money donated to me so I’ll spend my insurance money on the plasma telly instead.” Did you ever think that many people cannot afford insurance in these finacially difficult times? Have you considered the farmers who can only afford to insure their house and not their equipment, livestock, sheds and fences because the drought has deciminated their income levels? No, not likely. It must be very comfortable living and working in Sydney while making value judgements about people whose lives have been destroyed. Get over your self importance, travel to Kinglake, Flowerdale and Gippsland and tell your opinion straight to victims’ faces.The YankSun 01 Mar 09 (03:18pm)

So the money should only go to those insured? If so why bother, they are insured?Do you really think that people were thinking, ‘well there is going to be a bush fire someday that will burn down my house but never mind the government will step in and save me’? Oh please!EBABSun 01 Mar 09 (03:19pm)

There’s irresponsibility and irresponsibility. Take, for instance, the irresponsibility of the banking sector – in getting the whole world into the HUGE disaster that the global financial system has become. I’d say that if bushfire victims did not insure their homes, it is probably because money is tight due, in part, to their having to pay off exorbitant home loans dealt out to them by those very banks. It has proved (tragically) to be false economy.RobSun 01 Mar 09 (03:21pm)

No. I am surprised at you Janet. The control freaks already run this country and as usual they are from the lunar left who always believe they know better than anyone else how people should live their lives.

Freedom of choice means you can choose not to take insurance. And if you decline the option you should not get any sort of payout. Simple as that.MelSun 01 Mar 09 (03:24pm)

So true, but worth remembering that one can’t rely upon the goverment to fix it if your house just burns down during normal circumstances, then if you are amogst the 30% or so of uninsured, well you are on your own.yakkerSun 01 Mar 09 (03:33pm)

That’s bloody ridiculous. No insurance? No problem. Just be prepared to suffer the consequences.

Sure, all bush fire victims should receive aid and assistance. But a replacement home for those who didn’t have insurance? That’s absurd.bbtSun 01 Mar 09 (03:42pm)

What a sour, rancorous person, this Madame de Grumplestick is.pete down southSun 01 Mar 09 (03:48pm)

Are you a natural blond Janet?HannahSun 01 Mar 09 (03:56pm)

I’m all for charity and helping out those who need to rebuild and who have lost loved ones, of course I am. But money should go towards helping people make clearances around homes, developing fire aware communities, buying new fire equipment for homes and brigades, and not assisting those who didn’t insure their homes. People who can barely afford it still insure their houses and contents. People who donate or pay taxes shouldn’t bail those out who didn’t. If you can’t afford to insure your home, you can’t afford your own home. Bring on compulsory insurance (for all homes). Sorry.PeteSun 01 Mar 09 (03:59pm)

Completely agree Janet – although I’m sure you’re about to get scolded by the left-wing brigade for actually suggesting that people take responsibility for their own actions (or inactions in this case). Just more money suckling on the Government’s teet.GeoffSun 01 Mar 09 (04:01pm)

Here in Queensland, the alledged backward state, the fire levy is levied on our rates notices which means all house owners pay fir our fire services. Why are NSW and Victoria, two supposed progressive states hit people who do the right thing and insure their properties with htis fee only. So I ask those who aren’t insured why should fire fighters risk their lives defending YOUR properties when you are too cheapto even insure your own posessions. A

Secondly why should the rest of Australia pay for you to have your house rebuilt because you are too cheap.adaptapensioner.com.auSun 01 Mar 09 (04:02pm)

“it makes no sense for people to look to Govt.for help to encourage people when things go wrong”. Sorry Janet, there is ‘Acts of God’ that exclude Insurance payment responsibility even written in their contracts. The ‘risk-bearer’ then becomes the owner eg terrorist acts, warfare. Never have I heard the burn-out homeless-ever-ask for Govt.for direct re-building by “their neglect”. It was Rudd who caved-in and said “We will re-build your town, brick by brick” to big note himself. A very foolish little man to make such huge financial promises without prior, no costings to comply with road re-building, stormwater, electrical supply, sewerage and then the ammended building code. Every insurance company will only ‘pay-out’ to the value of what the house was “the agreed value’- not to re-build a bomb proof, bushfire proof, every incident proof that “Stay&Defend;” with rubber hoses as sufficient guarantee that the occupants won’t die of smoke afficiation, blown-out glass, electrical house to house loop implosion (which I think was the real reason for most white houses of fine ash-and not really a bushfire, directly, green tree tops, grass fires blackened). See aerial photos. Rudd got away with ‘Sorry’ times seven to blatent human abuse, yet supplied no money compensation and took advantage of the heartstrinks of a subjugated race. They are coloured ‘black’ and the bushfire are coloured ‘white’. ‘Black get nothing, ‘white’ get everything even without asking. I’ll be pleased when an aboriginal tribe ‘remembers’ back in Dreamtime that the Kinglake was originally their habitation, and white have no rights to their original ownership. See Manning Clark in ‘A History of Australia’ Vol. 1.JenkoSun 01 Mar 09 (04:04pm)

The same thing happened after Cyclone Larry. People who did not have their homes insured had new ones built for them. It created a lot of animosity in Innisfail. I support compulsory insurance in fire and cyclone zones.MaxSun 01 Mar 09 (04:06pm)

It seems that Australia is increasingly becoming a country where we reward the irresponsible and punish the responsible. Be have bailouts for all of those idiots that took out mortgages for way more than they could afford – all at the expenses of those who saved and are now experiencing the lowest interest rates in recent history. Now with the Victorian bushfires we are bailing out those too stupid to insure their homes.The message is clear – borrow as much as you can, don’t take any responsibility for your own future – so don’t insure your house, your health or anything else – and when things go wrong, go to the government with your hand outstretched. Rudd seems to have an endless stream of money to bail you out with,MichaelSun 01 Mar 09 (04:09pm)

Yes, I agree 110% … it is time to get real about the issues here … even if it does seem heartless, in the long term it can only benefit all. Not only should we not bail out those who failed to insure but also I would suggest houses built in clearly unsafe locations using clearly inappropriate materials and designs should NOT be allowed to rebuilt. Let us now begin a dialogue aimed at making real changes in the way we design and develop urban areas in this country.IsabelSun 01 Mar 09 (04:10pm)

Janet – your last article about the need for conservatives to sell their tough love type of compassion. You are doing a really bad job of it.Rhetorical RamblerSun 01 Mar 09 (04:14pm)

While broadly agreeing with the sentiment of your article the Insurance Council of Australia should be able to come up with a better solution than a vague inclusion only applying to bush-fire areas. When parts of Canberra erupted in flames a few years back (resulting in approximately 500 dwellings lost) the majority of the housing devastation would not have appeared to be in a bush-fire area. The same situation arose again this time in the Bendigo region, with the sixty dwellings destroyed in Bendigo being more suburban than rural. In a normal year domestic or suburban fires as opposed to bush fires would account for the majority of the dwellings being lost.

The real problem with insurance lies with the levies and charges not forgetting the federal tax take of ten percent on all polices adding significantly to the premiums. Rather than imposing further compulsory regulation upon ratepayers in supposedly bushfire areas, perhaps we should let those who prefer to save the premiums fund their own liabilities as your article points out.LongfulanSun 01 Mar 09 (04:15pm)

‘Stop bailing out the irresponsible’ headline! Would that apply the shonks and charlatans of the financial sector, the bankers?OHBSun 01 Mar 09 (04:20pm)

Compulsory insurance of your property is an exceptionally good idea. Banks won’t lend money for a vehicle purchare without insurance, why do they for a home? Surely common sense should prevale here? There is more to lose here than a car. This Federal Gov is so bent on bringing in new rules and regulations for business, this is probably the smartest place to start. As an individual I have cried many tears for the heatbreak many of these Victorials have suffered. And I too have donated, but as a tax payer and someone who has paid my insurance premiums for 20 years without claiming, it offends me that I have to pick up the tab for someone who was unwilling to to sholder that responsibility too.RaymondSun 01 Mar 09 (04:25pm)

Well said Janet. We’re going to see some interesting disputes over equitable maximes and the rules of subrogation in this one. Don’t the insurance companies ‘stand in the shoes’ of the insured? I think this is so for automobile accident disputes when they sue in the name of their insured driver.

Didn’t Rudd announce an indemnification for all? “Brick by Brick.” Taking any bets on the plaintiff? AAMI Ltd v Cth ? Shame Kirby’s not there now. Would love to know his opinion on this one.MarkSun 01 Mar 09 (04:25pm)

Looking to Government for help is not the way insurance works. People without insured homes have to suffer the consequences of thier inaction. Who knows, if they have not had home insurance for long enough they may well have saved enough to rebuild their own homes. If the Victorian Government rebuilds uninsured homes then what is stopping all home owners throughout Victoria from ceasing their own insurance. If this occurs then premiums for those who keep their insurance will rise and continue to rise – like health insurance premiums – to what end. To a point when no one can afford them.

These Bushfires were no ‘natural disaster’. I still can’t believe that the Victorian Government can be seen to look so good in the aftermath of these recent fires, when they have been utterly responsible for them in the first place. The DSE should be accountable for all that has occurred in its inability to clear trees close to property. The Greens should also take some responsibility too. This current Victorian Labour Government has had more than enough time to restructure how Victorians live in the bush. The time has passed where they can lay blame on the previous Victorian Liberal Government.btpSun 01 Mar 09 (04:29pm)

fancy having to mount an argument like this janet! it is because of the “freefeed” mentality that now pervades our society. it is not a political argument rather one of social responsibility; however that never washes with the freeloaders who are all too often encouraged by the pc of this world and on many occasions by government too. the big threat to australia is the temptation of krudd to follow obama’s lead and transfer more and more to the chattering class and away from the engineers of the economy, those who want to work. it is disappointing having to implicate government but krudd could steal a march here and set a fine example. encourage self sufficiency!